6 Hard-core Steps to Take to Retire at 50

In today’s economy, with its stagnant wages and disappearing pensions, many Americans believe that their best shot at retiring early is a scratch-off lottery ticket. In fact, it’s far more common to hear people discuss the possibility of working past age 65 than it is to hear them make plans to quit work sooner.

To be sure, retiring by age 50 is no easy task. Not everyone can do it. But it’s a much more tangible and achievable goal than you might think.

The key to retiring early is motivation. How badly do you want to get out of the game while you’re still relatively young? Are you willing to make the hard sacrifices it takes to set yourself up? If you want to retire by 50, you’ve got to make a choice now and take control. That’s where an entrepreneurial spirit is essential.

Nobody retires early without some sound financial planning -- that goes without saying. A 22-year-old MBA with student loan debts and $100 in his or her checking account is going to need a much different plan than a 47-year-old business owner halfway into a 30-year mortgage. But if you follow these six strategies and set goals for yourself, retiring at 50 doesn’t have to be a dream. It can be your real life.

1. Save, don’t spend.

Saving money is the single most important factor to early retirement. If there’s no money in the bank for you to live on, you’ll never wean yourself off those paychecks. This means that keeping up with the Joneses is not going to be an option. That brand new luxury car and the biggest house on the street are for suckers, not savers. Frugality must become your new religion. Cut spending everywhere you can.

Ideally, you began saving money for retirement as soon as you got your first job. If you didn’t do that, save as much as you possibly can now -- you’ll need to set aside more of your annual income than you would have to if you’d started at the age of 25. That’s going to involve living below your means, since by the time you reach age 50, you’re going to need about 33 times more money than you expect to spend during your first year of retirement.

2. Adjust your purchase priorities.

When it comes time to make a purchase, your priority should be ensuring that you won’t have to make the same purchase for as long as possible. The products you consume should be prized for their longevity, reliability and affordability -- in that order. It often costs far more to buy a cheaper item that will wear out and need replacing in a year or two than it does to buy a more expensive, more reliable item that will last for years.

For big-ticket items such as cars and homes, remember to consider the cost of ownership, too: Some cars are more expensive to insure and maintain than others over the long term. Homes with swimming pools or wood-shingle roofs may incur maintenance costs that can ruin your savings plan in one fell swoop. Any purchases that will result in long-term expenses should be avoided whenever possible.

3. Earn more money.

In order to maximize your savings, you’re going to need to maximize your earnings, too. A good first step is to work hard enough to earn a raise and then ask for it. If you don’t get it, then pound the pavement until you find a better-paying job. This kind of ambition comes naturally to a lot of entrepreneurs, but if it doesn’t come naturally to you, grit your teeth, focus on your goal and work to make it happen. Any raises or bonuses you receive, obviously, should go straight into savings.

A raise is only the beginning, however. Look for passive and portable ways to bring in more money. Take a side job writing or consulting; sell things that you no longer need online. One potentially lucrative option is to create ebooks or other intellectual property that can keep earning you money even after you’ve retired.

4. Pick a sound investment strategy and stick to it.

Investing wisely is not an option for early retirees -- it’s mandatory. Most official retirement plans, such as IRAs and 401(k)s, are good because they’re tax-free, and many employers will match your contributions. However, most also have penalties for withdrawing money early, and many investors find that they simply don’t offer the returns necessary to get you out of the game by 50.

It may be tempting to make riskier investments in order to bring in bigger returns. Understand, though, that if you want to retire at 50, you’ll have less time to recover from mistakes. If you’re 30 now, you only have 20 years to save and invest, and a big loss can ruin your plans. Invest conservatively: Evaluate investment opportunities like dividend stocks, rental properties, bonds, and peer-to-peer lending. Make sure your portfolio is large and diversified across asset classes to help ensure that you can withstand losses and survive a bad market or two.

5. Mind the gap.

Counting on social security to make the math work? How about a pension or a retirement plan? Chances are high that those won’t be available to you at 50. As we’ve discussed, traditional retirement plans carry penalties for early withdrawal, and pensions and social security just flat-out won’t be available yet. Non-retirement assets are necessary to bridge this gap between the day you retire and the day your benefits start rolling in.

One asset that can be a huge help toward early retirement is home equity. Often, the timing is perfect to sell and downsize your home at retirement, offering a nice windfall. The IRS allows married couples and individuals to exclude large gains from the sale of their home from income tax, which can account for a sizeable bonus.

6. Plan your getaway.

Retirement dollars stretch a lot further in some locales than in others, and it’s easier to retire early if you move to or settle in a place with a low cost of living. In the United States, the most affordable places to retire are often smaller cities and towns, tucked away from high tax rates and the demand for housing. If that doesn’t sound quite exciting enough for your early retirement, consider heading abroad.

Destinations such as Costa Rica, Vietnam and Belize offer the temperate climates, outdoor adventure and sandy beaches of your retirement dreams at a fraction of the cost of retiring in Florida. An average household budget in these places is often as low as $750 a month.

Putting together the funds you need to retire at 50 is a challenge that the average American consumer finds difficult, if not distasteful. It involves a lot of delayed gratification from your hard work. But at the same time, the prospect of enjoying the freedom of retirement while you're still in your prime is an almost irresistible proposition.